Accrol Group Holdings plc (LON:ACRL), the UK’s leading independent tissue converter, has announced its results for the six months ended 31 October 2020.
Summary of progress
The Group’s progress continues with all aspects of the business performing well. Margins are continuing to improve, and further improvements are expected, generating increasingly strong cash flows and reducing net debt at a faster rate than anticipated.
The integration of Leicester Tissue Company (“LTC”), acquired in November 2020 for a total maximum consideration of £41.8m, is progressing better than expected and the Board looks forward to providing more details on the positive impact of the acquisition on the Group as the year progresses.
With margins continuing to improve, LTC contributing positively and the business continuing to deliver strong organic growth, the Board is confident that the Group is fully on track to deliver a strong H2 performance and results for FY21 will be at least in line with market expectations.
As a result, the Board is delighted to announce its intention to restore dividend payments earlier than it anticipated and expects to propose a final dividend of no less than 0.5p per ordinary share for the year ending 30 April 2021 (“FY21”). Net debt (pre IFRS 16) 30 April 2021 is expected to be below consensus market forecasts (currently £12.2m), even after the intended dividend payment.
As announced in December 2020, Accrol’s senior management team has been strengthened further with Richard Newman joining as Chief Financial Officer (“CFO”) on 1 February 2021. Richard joins the Group from DS Smith Plc, where he is currently Finance Director for North Europe. The Group now has a leadership team of significant experience, capable of executing an ambitious growth strategy to deliver a diversified business of scale focused on the household and personal hygiene sectors.
| H1 21 | H1 20 | H1 19 | H1 21 vsH1 20 | |
| Reported results | ||||
| Revenue | £62.3m | £65.1m | £57.6m1 | -4.3% |
| Gross profit | £14.8m | £12.8m | £6.9m | + £2.0m |
| Gross margin | 23.8% | 19.7% | 12.0% | + 410bp |
| Loss before tax | (£0.5m) | (£3.0m) | (£9.0m) | + £2.5m |
| Net debt (pre IFRS 16 impact) | £18.1m | £24.8m | £22.6m | + £6.7m |
| Net debt (post IFRS 16 impact) | £26.8m | £37.4m | – | + £10.6m |
| Underlying results | ||||
| Consumer Revenue2 | £62.3m | £64.5m | £53.9m | -3.4% |
| Adjusted gross profit3 | £15.4m | £13.0m | £9.9m | + £2.4m |
| Adjusted gross margin | 24.7% | 20.0% | 17.2% | + 470bp |
| Adjusted EBITDA4 | £5.4m | £3.2m | (£1.1m) | + £2.2m |
| 1 | Includes revenue from discontinued “Away From Home” operations |
| 2 | Excludes revenue from discontinued “Away From Home” operations |
| 3 | Defined as gross profit before exceptional items. This is a non-GAAP metric used by management and is not an IFRS disclosure |
| 4 | Defined as profit before finance costs, tax, depreciation, amortisation, share based payments, IFRS 16 changes and exceptional items. This is a non-GAAP metric used by management and is not an IFRS disclosure |
H1 21 highlights:
| ● | All aspects of the business operated safely and successfully throughout the pandemic with no furloughing or government support being accessed in any way |
| ● | Adjusted EBITDA increased by 69%, compared with H1 20, with returns improving to 8.7% of Group revenue |
| ● | Margin improvement driven by more selective product mix, resulting adjusted gross profit 18% ahead of H1 20 |
| ● | The Group’s share of the total UK tissue market rose by just under 1%* in the Period |
| * | After adjustment for reduction in brands sold at a discount and the increase in retailer margin during the Period |
Post H1 21 highlights:
| ● | Strategic ambition demonstrated with a successful placing and open offer to fund the acquisition of LTC in November 2020 for a total maximum consideration of £41.8m: |
| – Well invested modern machine asset base providing transformational step change in Group capacity (now c.£220m including facial tissue) | |
| – Initial EBITDA multiple paid for LTC will fall from 7.8x to 5.5x, if LTC achieves criteria for payment of maximum deferred consideration | |
| – Central UK location provides significant logistic cost advantages for the enlarged group | |
| ● | Richard Newman appointed as the Group’s new CFO from 1 February 2021 |
| ● | Full automation of the Blackburn site delivered on time and to budget, completing the final major operational change at the site |
Current trading and outlook:
| ● | The integration of LTC has begun well with no issues to report and volumes across the Group strengthening further in H2 21 as expected |
| ● | Margins and cash generation are continuing to strengthen, as new products are rolled out across the wider customer base |
| ● | Net debt reducing at a faster rate than anticipated, as a result of ongoing margin improvement and cash generation, and is expected to be below consensus market expectations for FY21, even after the intended dividend payment |
| ● | The Board is confident that the Group is fully on track to deliver FY21 results at least in line with market expectations with the business continuing to deliver strong organic growth |
| ● | The Board intends to restore dividend payments and expects to propose a final dividend for FY21 of no less than 0.5p per ordinary share |
Dan Wright, Executive Chairman of Accrol, said:
“I am particularly proud of the professionalism, commitment and flexibility our employees have demonstrated, in the face of the many and diverse challenges, both personal and work-related, which have been thrust upon us by the COVID-19 pandemic. Throughout everything, our operations have performed exceptionally well without any disruption to supply.
The margin improvement, that we have continued to deliver in the Period, is a result of our determination to deliver great products, that the consumer wants, on a consistent basis, and builds on our key partnerships. Our strategy to supply the widest possible group of retailers, furthered by our acquisition of LTC in November 2020, gives us the strongest opportunity to grow profitably and deliver double digit EBITDA margins.
In our Final Results for the year ended 30 April 2020, announced in September 2020, we stated that it was our plan to return to dividend payments in the medium term, should the Group’s financial performance continue on its current and expected trajectory. We deliver on our promises and, as a result of our relentless drive on operational efficiency and our ability to deliver product innovation the consumer wants to buy, we are announcing our intention to return to dividend payments earlier than expected. Our shareholders, old and new, have been incredibly supportive of our strategy and ambitions and to announce this gives us an enormous amount of satisfaction.
The Group’s recent acquisition of LTC and the announcement of a high calibre Chief Financial Officer puts the enlarged business in an even stronger position to grow into adjacent markets and through vertical integration. The expectations and ambitions of the Board and the senior management team are high, and we move into 2021 with confidence.”
Gareth Jenkins, Chief Executive Officer of Accrol, said:
“I would like to thank our people for delivering another strong performance, continuing to deliver improvement across every aspect of the business and building further on the achievements of FY20.
Our relentless approach to efficiency remains at the core of everything that we do, and we will continue to deliver margin improvement in all areas of the business. Our team remains focused on delivering great products and great service and we are not afraid to churn the mix of our work further, as we target the leading brands for our growth. Sales to the Group’s top four customers have continued to grow and I feel very confident, as the UK emerges from this pandemic, that the growth of the discounters, the private label brands and great value products will accelerate.
The long-term structural growth in the sector is significant and our recent acquisition of LTC, with its outstanding modern machine assets and capabilities, provides a significant opportunity to accelerate the switch to best value products and place increasing pressure on the leading luxury brands.
Our team’s capability and ambitions are strong, and we will continue to explore opportunities to deliver yet more value to the consumer and our investors, through acquisition, new product development and vertical integration.”
